Does Peak Happiness Really Come at $75,000/year?

Mr. Money Mustache endures the deprived life of a frugal person with no motorboat during a recent 2-month summer vacation to Canada.

There’s quite a bit of interesting stuff circulating in the mainstream media these days on the topic of personal finance.

You’ve got the Whiny articles, where high-income people with terrible spending habits talk about the crushing cost of living these days, and how “we’re the first generation that will never be able to retire”. Waah, Waah. We already made fun of those articles and the people they profile in this old MMM Classic Article.

Then there is the debt angle. Consumer debt has been rising as a percentage of income for decades, as increasing numbers of people are fooled into trading future freedom for current overspending. In the US, this debt escalation is temporarily on pause due to the after effects of the great financial crash, but in other countries (including Canada) the party has continued.

In fact, I recently participated in a CBC news interview along with two MMM readers, where the reporters contrasted the modern debt-based lifestyle, with the life of people on track to retire before they hit 40. The show is a national TV/Radio/Web combo and it in production as I type this, but it will probably appear at this link when it airs on September 6th*.

Student loan debt has joined the fray, racking up at record levels as universities raise tuition at rates faster than general inflation. Meanwhile, economically uneducated students and parents select out-of-state and private schools with higher tuitions and live far-from-frugal lives during those four years, resulting in fairly large loan balances upon graduation.

School debt has become a popular feature in US media, to the point where my friend No More Harvard Debt has become a national TV personality** – just by making the effort to pay off his Harvard Business School debt at a reasonably quick pace. As opposed to stretching it out over decades like many people do while simultaneously buying cars, houses and iPads for themselves. Joe from NMHD did the right thing by realizing that, duh, you pay off your debts FIRST before buying additional stuff. But the practice is so rare these days, that you get to be on TV if you do it.

Finally, there is the occasional counterpoint in the media, where psychologists and other researchers pipe up and suggest that maybe we’re all chasing the wrong dream, and that just perhaps our goal should not to be to earn the maximum possible income at all costs. Stories like these are always controversial, because when you ask US residents whether they would rather have more free time or more money, they always say “More Money”.

One of the concepts that pops up in these discussions is that “peak happiness occurs at $75,000 per year“. The basic idea is that studies and surveys show that households don’t get noticeably happier when they exceed this threshold of earnings. And thus, we should all relax because $75,000 is a pretty attainable goal, much less than we thought we even needed to survive!

The researchers are clearly onto something here: the hidden-in-plain-view secret that once your needs are met, buying extra stuff does not make you happier. But they’re also missing a much bigger point: where did that $75,000 number come from? What is it about that level that makes people happy?

I believe it’s a combination of two things:

$75,000 per year puts you in the top third of household incomes nationwide – so you’re better off than most people around you.

The survey participants were completely untrained in the Art of Mustachianism, so on average they lead highly inefficent lives.

Once you understand these two factors, you get a little “Aha!” moment. Because if some novice Antimustachian off the street can achieve peak happiness at $75,000, an even remotely Badass person should be able to do it easily with a fraction of that amount.

Maintaining exactly the same level of material luxury, but avoiding debt and making purchases more consciously (buying quality used items instead of new ones, not commuting to work in a pickup truck, doing occasional math before buying things, etc.) can generally cut a person’s annual expenditures by at least 50%. So we’re down to $37,500.

Moving to the next level of avoiding unnecessary stuff in the first place (owning one car and a bike instead of two cars, living close to where you work, and tinkering just a bit with minimalism), can probably cut 10-20 grand off of that already-reduced figure.

So in other words, the $75,000 Peak Happiness number is a measure of social norms, rather than the actual usefulness of that much money. If median income were lower, and especially consumer insatiability, the amount you need for peak happiness would be lower too.

Therefore the purpose of this blog is to allow you to fine-tune your own Peak Happiness number to whatever you need it to be, to allow you to heap on the added boost of complete financial independence.

What is your own number? What’s the ideal household spending budget that would allow you to be as happy as possible? It’s worth thinking about on a regular basis.

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* Hmm… now that I see the little web article, CBC seems to be focusing on this “living on a tiny amount” issue and “forgoing almost all material luxury”. Which is not what Mustachians generally do. I also like how they have a weird little washed out and vertically stretched frame capture from my skype interview, while the other Mustachian pictured is all super-handsome in front of a foresty background. Oh well – all publicity is good publicity as they say..(?)

** Joe/NMHD was even a competitor in a reality TV show recently, although I am not sure if that odd development is related to the blog.

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I was recently thinking about this the other day. My last job was crazy stressful but offered more opportunity for income growth while my current job is much more laid back but makes me happier in life while not having quite as much income growth potential.

To me my new job is totally worth it because I already make enough to be happy. I have everything I need and any extra money would be aggressively saved even though I am already saving plenty. No need to chase after more income for more stress for me and that makes me happier!

Another great article! My husband and I have been living off of about 30% of our income recently and we have never been happier! I can tell you that 30% of our income is a lot less then $75,000. I feel that the American culture generally believes that: more money=more spending=more fancy things that you don’t need. The more and more I speak with my nursing colleagues the more I gather that the majority of them are working overtime just to sustain their excessive lifestyle. They depend on the overtime to survive, but they don’t even bother to cut back on their vacations, luxury cars, etc. It’s become the new way of life and it’s terrible because “things” will never help you reach that happiness threshold.

WEll I can tell you that 100% of our income is a lot less than $75,000. But then we have taken the slightly different approach and have the luxury of minimizing the amount of work we do to match the amount of income we need. We are not Financially Independent yet, but will get there in a reasonable amount if time. It would be sooner if we wanted to work more, but hey, thats not the point to us! we can balance our need for income and our need for free time now before we actually reach FI. I guess you can call us a Hybrid family.

I am in the same boat as you in a easy going job, but my desire for more is killing me on the inside as I want something more challenging. Maybe I am losing it by wanting to take on more stress, but I do not like what I do and need a change after 4 years. I want to transition to something in finance with a greater responsibility.

It’s amazing the difference depending on where you live. I am in a nice town in Indiana (yes, Indiana) with a great elementary school (nineteen kids in a class!), sidewalks, low crime, a great library, etc. and I just bought a cute three bedroom ranch house with big yard in the “downtown” area for $500 a month! It’s been a little tough adjusting to the culture but I think there are good people everywhere.

I am glad we moved because as a divorced mother making less than $30k a year, we can make it here. I understand people want to stay where their jobs and family are, but I don’t know why more people don’t consider moving?

you nailed it! People need to stop focusing on making more money just to buy more stuff. This is the never ending rat race that you will never win. Find the job you like and live within your means and you will be happy!

I started off right out of college in kind of a worst-case scenario in which I was fairly underpaid, in a job that was not developing transferrable skills, and in which I had about 6 different people who could tell me what to do. It was quite stressful. It was an 8-to-5, ‘Show up on time, take your lunch hour at exactly noon, start at one, work til five — unless we need you to stay later.’ type gig.

I switched jobs to a place where they paid me 50% more, it was 9-5, we had a timesheet but it was ‘to make sure you weren’t doing any work for our clients without them paying for it’, and the whole atmosphere was dramatically more relaxed. I had to work less time, with less unit of effort/stress per unit of time, and I got paid dramatically more. The transition was AWESOME.

The main reason we’re currently working our tails off – 1 full time job, a complete house renovation, and undergraduate degree and a masters degree – is to pursue a higher level of income SO we can have more time that is our own in a few years. I’m routinely admiring/jealous of the MMM family and that Mr and Mrs have time to raise MMM Junior the way they want. I want that for my family, when we have kids.

Since finding ERE and MMM last year, we’ve cut our expenses down significantly and we are much happier for it! And we have managed to pay off several loans while keeping a healthy eFund in the bank. It’s so nice to not have to freak out about expenses that come our way. We’re able to peacefully do what we want to do (frugally). And after we are out of DEBT EMERGENCY mode, we’ll be primed and ready to squirrel away enough money to retire early.

All thanks goes to MMM for wisdom and opening my eyes to an alternate version of the American dream!

My personal philosophy on this is, I am already financially independent: if I decided to quit my job tomorrow, I could. But some random person can’t just decide they want to join the 1% tomorrow. In that respect, I feel like I have the ultimate freedom.

Basically it’s a hedge against retiring then changing my mind. The only thing keeping me employed at this point is inertia. I’m not personally invested in my career, so there’s not a massive difference to me whether I’m “retired” or not.

I’m sure I’ll regret having not retired sooner, but if I had retired already, I would probably have regretted doing so.

The reason I commented is that I am in almost exactly the same situation and paradox. The difference is that I have two part time jobs and also have enough wherewithal to not need another dime till I depart this mortal coil.

I guess what is holding me back is that I feel semi-retired already in that I generally decide what to do, how to do it, and when I do things. The work is interesting and worthy to humanity, so I’m not sure retirement would actually be any different.

On the flip side of this, the additional income I receive from continuing to work is being deployed gradually to further decouple from financial obligations such as my recent acquisition of a Chevy Volt resulting in getting off the gotta-get-gasoline treadmill – and this has worked!

But, I do admit to a feeling of wanting to take 6 months off and not have to think about anything at all, but to travel and enjoy a serious session of continuous grinning from ear to ear. That’d be nice :-)

After I immigrated to Canada in 1997, I could have used my 1 year exception and spent time learning language, but I love to work – so I walked down the road, knocked on the business doors until one business gave my my first job – at $6.85 per hour.

That first year I made $6500 in total wages (I immigrated in May), used bike to rite to work, did a very hard and dirty work of hauling hot water tanks up and down the stairs and yet those were some of my happiest times. Now I make more than that in one month and while I am happy, I am also more stressed.

Conclusion – I was happy with $6.85 per hour because it was easily covering my living expenses without much stress.

Aggregate numbers like “$75K” make good headlines and the studies are interesting, but at the end of the day, almost nobody lives an “aggregate” life, so the number itself ought to be relatively meaningless to the individual.

What seems more pervasive to me — and strange when you think about it — is the idea that we need such information to “prove” or reaffirm what we ought to already know. We shouldn’t need a study to tell us (individually) when we are happy or not! (Or healthy or not — or have good relationships with our spouses or children — or any number of other essentially subjective measures of well-being).

Yet I suppose its human nature to seek validation for one’s impressions. And people like to be able to say “I live this way (and you should too), because its scientifically proven to make me more [insert desireable characteristic]. My favorite was an old car commercial that had people answering the question “What does your car say about you?” and one of the answers was “It means I’m more Europeanish.”

I think you have it right and that seeking external validation for oneself is a much bigger (or at least more pervasive) problem than people realize. since there is no zenith point of where that outside praise is enough, technology will develop (and create new products to own), fashion will change, and it is all to easy to find someone with more and then base your happiness on where you are in relation to your peers (or whoever you compare yourself again).

Like Sheryl Crow sung, “it is not getting what you want but wanting what you’ve got,” in that if you focus on being the way you want, you throw off the “keeping up with the Jones” yolk. Granted, it is much easier to say than put into practice. But that is part of why I read MMM and work every day to try to think that way. Sure, there are the good and the bad days, but over time I’m hoping that the good days will vastly out number the bad.

Very insightful, Dragline. I never really looked at the motivation behind these studies, but the popularity of their results does appear to be derived from peoples’ need to find external affirmation of their lifestyles and choices.

The purpose of the study is to see whether “money buys happiness,” which conceivably could have policy implications. The study’s conclusion is that day-to-day emotional well-being tapers off at about $75K. (The study specifically mentions [hedonic] adaption as a factor). However, another measure of happiness, life evaluation, continues to grow with the log of income. Education also factors into life evaluation.

I agree that the $75K number is not the number required for a happy living level, since we can live off of $2K/month (like MMM); however if I were only working for $2K a month, I would be extremely unhappy. I would be unhappy because the stage has already been set to where I expect to save extra salary above and beyond the $2K a month, and that NOT working will bring me more happiness.

While on the path to achieve FI to the point of $2K a month (after a reasonable mortgage) I would be reasonably happy at a salary >= $75K. The faster I get to FI, the better!

For me the important point MMM is trying to make is that you do NOT need $75K a year in your post-retirement years, since you should be done saving and can live plenty happy off of merely $24-27K a year.

I agree with this 100%. In my current situation, I would not be happy with $2000/month because that would only cover my mortgage and food. Once the mortgage is paid off, $2000/month would be quite fine and I will consider my husband and me financially independent, which would make me very happy.

One thing I would like to add, however: Being happy is a state of mind, and we can choose happiness no matter how much we make. Some of the happiest times of my life are from when I was in college cleaning toilets to pay for school while also enjoying college life. You can be happy while poor, rich, or financially independent, just as you can be unhappy while poor, rich, or financially independent.

We can choose to be happy NOW, regardless of our situation (and while still trying to improve our situation to where we believe we will be optimally happy- whether that be by being able to retire early or to travel the world), or we can forever pine for what the Jones’ have and never be happy with our lot in life.

Great point. Our family saves a lot by non-mustachian standards (and an OK income percentage by mustachian standards). We get regular raises and promotions, but I am never happy with our income, I want more, though we are far above the 75k mark. Its just knowing that the more we earn, the more we save and the sooner we can buy our freedom. Every raise equals to some extra years of life.

I’m pleasantly surprised to see some relatively Mustachian comments on that article. I laughed at the one that asks why one would “live like a pauper” while young in order to “live large” during retirement…talk about missing the concept…

The comments are already taking a turn for the hilariously antimustachian. Apparently buying a house to live in is the only way true patriots invest, and you’re a Marxist now if you run the numbers and discover that renting is cheaper than buying in your area.

Indeed, indeed. Also, I don’t generally drive my “Used” car, I select one of my used bikes instead.. some of which I bought “new”, but unfortunately I’ve used them quite a bit at this point.

I find the concept of “he drives a used car” insulting, because it implies I’m sitting there every day unhappily in this rusty old thing, being too cheap or poor to afford the “new” one that I deserve.

(For now, we’ll neglect the fact that my main car is in brand-new condition because it lives a sheltered life in my finished and insulated 2-car garage/workshop.)

Also, older cars have more character: my first car was a swift we baught (in cash, of course) from a friend when it was 10 years old.
The cute, reliable pet has taken us to loved but far family, our own wedding, and even helped us move.
A car like that is never to be sold – we semi-permanently loan it to my sister – good things need to stay in the family.

Good point Mr. Risky Startup! Mrs. MM is responsible for right around half of our current net worth.

And the implications that

a) $24k/year plus a paid-off luxury home at the foot of the Rockies is any sort of sacrifice, and
b) that I’m imposing it on this fine lady rather than living in a partnership where we decide things together

I am embarrassed that our national broadcasting organization (CBC), would print something stupid like “he supports his wife and child…”. They obviously did not bother reading his blog, and apparently, writer is a caveman… Who says shit like that these days?

Red: except he literally said, a few comments above, that Mrs MMM is responsible for half of their net worth. He also mentions how she was pouring dinero into their joint FI account on their way to FI. They had their kid after they retired. So she wasn’t just sitting around doing ‘$2000/mo unpaid labour’. She was hustlin, stackin’, and ‘stashin real dollah billz, yo!

About $1000 CAD per month would do me, I think. That’s still significantly above the $800 I need to cover my half of the household bills; and that will drop significantly when our mortgage is paid off.

1000 sq ft house – “huge” really, plenty of space for two, and hopefully still enough as/when a mini-person arrives. We’ve got a nice sized lot too which is awesome!

My wife, son and I live in 1150 square feet and we actually like it more than when we had 4 bedroom behemoth with a pool and yard. We have more time to travel, wife was able to retire to be with the little one (and thanks to her staying at home, he can already read all letters, speaks hundreds of words, counts to 20 – and he just turned 2) and we buy less junk because we have nowhere to keep it.

I was lucky though – I grew up in the 3rd world country where my entire family of 5 (and on occasion as many as 9) lived in 1000 square feet and we led insanely happy lives. It is all about keeping as few things as possible, using items that have multiple purpose (example: ottoman that doubles as a table, and has huge storage for toys inside) and being smart about what you really need (and what is a want).

We have a city owned and maintained pool 1 block away, 3 parks in the walking distance, small park-like back yard at our condo with BBQ and patio furniture and our condo has higher quality appliances, kitchen and bathroom than $250K houses my employees are buying :)

In any case, every time we think that we do not have enough space, we remind ourselves that true problem is having too much stuff – not lack of space.

As only a quasi-Mustachian due to living like my debt is an emergency only to pay it off and move overseas to work more, I strongly desire to live in any number of countries one might consider “third world.” I recently moved out of my own 1000-sq-foot apartment, too big for myself and a pet, and am living in a 400-sq-foot studio.

While it is, in my Mustachian-friend’s words, “400-square-feet of fun!”, I am in freaking LAS VEGAS, so it is easy to get occasionally distracted. The fact that I live around and work with people who are on in the poverty-stricken-arena of life, but waste their money like good ol’ middle-class folk, doesn’t help.

I earnestly wait for my future in other countries where I can teach and live on less without the “American dream” version of happiness a constant drag–though there are ephemeral, unwise ideals in any place.

The WSJ article doesn’t say if the $75k is per person, but I am assuming it is.

Does that mean that for a couple, it would be $150k? That’s a nice haul!

I live way below my means because I am saving and investing to retire by 42 (and that number may come down based on a few variables). Not too long ago whenever I made more money my spending increased in correlation. And in hindsight, spending more money didn’t make me one bit happier.

The income/spending relationship became quite apparent because I graphed this data YMOYL-style. It’s pretty darn cool.

When I re-commited myself to financial independence I started eliminating the coffee shop in the morning and opted to make my own at home. I stopped going out for lunch and instead brown bag it. I gave up cable. I ratcheted down travel (and the airfares, hotels, restaurants) and replaced it with a camping trip or two. I stopped “keeping up with the Joneses”.

And what did I find? I am just as happy if not more. I found that without all these extra things in my life, I am more relaxed and less stressed. There’s less to think about, less to keep track of, and less to manage. Less is more! I am more content to go on a walk around my beautiful neighborhood and enjoy *life* then go to a fancy pants restaurant and down Cristal.

And the ancillary benefit? I am saving even *more money*, which I am investing, which in turn will make early retirement even *earlier*.

My current happiness number? About $36,000 (the 15 yr mortgage is a large part of that). And I live a good life!

The study states that they requested survey respondents to report family household income, not individual income. However, this is self reported and not well defined so I wonder how accurate the info is. I’m sure some reported gross income and some reported net income. I guess the take home message is the same as every other study I’ve seen of this type. Money can help avoid discomfort and inconvenience, but cannot buy happiness. Well, duh!

Is it money or status? Sometimes I think that majority of people I know, buy things only as a status symbols…

Other theory is that people are using money as a distraction – so many times I hear about couple that is not getting along, but they go and buy a bigger house (or have more kids, or buy a dog) – as if bigger house is going to save their marriage?

You’re right of course Mr. ERE.. but we’re getting somewhere in that regard, slowly but surely.

I’ve been thinking about ideas for how I might take you up on your recent offer of a post for the readers here.

One of the ideas would be a discussion between us on the world’s fossil fuel situation along with the current state of peak oil study. The other, which you just triggered right now, would be a proposal you would make on how we SHOULD measure national progress in contemporary society.

I know there are already some systems being tried out around the world such as Britain’s national happiness index, but I have a feeling that YOU have a handle on all of it already, and may have a pretty neat way to express it. Thoughts?

“I’ve been thinking about ideas for how I might take you up on your recent offer of a post for the readers here.”

Hooraaaa! I hope the Mr. ERE becomes a regular guest poster because I really miss his posts. I think Mr. ERE and MMM post on complimentary (not very overlapping) topics. Mr. ERE tends to be at the strategic, really-big picture-level while MMM is more of a tactical, nuts-and-bolts level.

I created a spreadsheet like the one suggested in the YMOYL book where at the end of each month, for each expenditure category, I think about whether I got satisfaction in terms of life hours spent, and add a +, – or 0 to indicate that I want to increase, decrease or keep spending the same amount even after I retire. This is supposed to be a sort of barometer that indicates whether your spending matches your life values or not. I can share the template of this spreadsheet with you folks if there is interest.

Having said that, I still appear to have become more focussed on cutting costs than anything else. I wish I had a balancing spreadsheet/tracker for things like health/mental peace/creative work done etc. to ensure that all of that was also going up while I was cutting costs.

Red, I have a list of areas of my life I want to / need to focus on – managing my staff, maintaining our home, relationships with family, relationships with friends, health – with specific items under each one. I review it quarterly to make sure I stay in balance.

I rent, but I have enough money in the bank to buy my 130K Condo tomorrow for cash. My rent is $1000, but that includes $220 condo fee, $200 in taxes, another $50 or so in insurance, maybe $100-150 average in maintenance costs (AC last year for example – $3300). So, if you deduct these costs that I would have either way, we are left with $430 that I truly pay to my landlord.

My $130K investments produce on a bad month $400 in returns. So, I may be wasting $30, but I can move when I want, downsize if I want…

Not to mention, if shit hits the fan, it is much easier to cash in some of my investments than sell the real estate.

Owning and renting are both good solutions, depending on the circumstances, but I have a feeling that Banks have brainwashed many into believing that owning is ALWAYS better than renting, which is a BS. If being a landlord was so great, banks would be doing it instead of mortgages, But, with mortgages, and with majority of people being dumb, they basically rent out these homes to suckers who work like slaves, have to do their own maintenance and only if everything works great, do they see a dime at the end.

I think $75K is useful in and of itself. Most readers here would probably say, “I can be perfectly happy and content on much less.” Sure, but we are talking averages here and readers of this blog spend less than average. The average American earns 62K and spends 48K per year. After taxes, that leaves around 2K per year as a cushion.

At 75k per year, most will have a nicer home and a slightly nicer car. However, that’s only going to bump them up an extra 6K per year. The rest is gravy.

I recently hit that number in before-tax income. It felt like I accomplished something. I am perfectly content now in my life. I think that’s what these studies are trying to show: “at what pay level will people be content”?

It’s possible to have no savings and still be content with your earning-level. One does not dictate the other (savings vs content). I’m currently in debt pay-back mode, and the raise helped me get closer to $0 owed. I have no savings, besides the fact that I don’t owe as much as I did. So my whole income is spent, and virtually none goes to savings. I put about 25% towards debt repayment though. Not as mustachian as some, but sure a lot more than others.

Once our low-interest debts are paid off, and our expenses reach steady-state ‘Stache levels, I estimate we’ll be somewhere in the $25,000 to $30,000 range.

I can say, though, after I was first Punched in the Face nearly a year ago, our monthly expenses have dropped around 25%, while quality of life has also significantly increased as a result of inheriting Mustachian principles.

MMM, thank you so much for all that you’ve done and continue to do with this blog. It really is improving peoples lives!!!

so I’ve been thinking about the numbers….
24K + *a paid off house*
that means a savings amount of 600,000 (relying on the 4% rule)
because let’s be honest – the 24K is possible to live on in large part – because you don’t have jobs you’re required to go to, no after school childcare costs, ability to spend more time doing things by biking – because you don’t have that 40 (50 or 60)hr a week tie up that is work
and enough money to pay off the house – we know the MMMs live in a half a million dollar house – but let’s just for arguments sake that the average joe should be shooting for something more in the $250K range.
That means that someone needs to generate minimum of $850 in savings – divide over 10 year (start working for *real* money at around 20, retire at 30), so that’s 85K a year in savings.
No offense – I think most people could severly trim their budgets, and we would all be better for it – but ‘a paid off house’ and enough money to generate 24K per the 4% rule – is still A LOT of money.

All you REALLY need for financial independence in 10 years or so, is to learn to save about 65% of your take-home pay. It’s possible at almost any income level, once you learn to run the numbers before buying things, and if you’re innovative about how you live your life.

At the point of FI, you can even scale things back up by saving even more very quickly, if you want to live the remaining 70 years of your life at a higher level of consumption.

I think the important mesage for people to hear is that if they avoid lifestyle inflation for even just a few years, they could be retired in 10. Part of that is the build up of – going to school to find something you love so much you’re willing to do it for ‘the rest of your life’.
I wish I had made smarter choices when I was first starting out. But part of the reason for some of my choices was rebelling against the ‘super frugality’ mindset of my parent. Finally being able to have my own money and spend it one something I found worthy (because they didn’t find ANYTHING worthy). I’m finally swinging the pendulum back to rational (which yea, seems crazy to others) standards but as they say – money is more about mind than math. I’m still consistently amazed at how much money our household spends on certain items – we’re a work in progress – and how much I’ve been able to cut just by being more mindful (meaning no discerable reduction in quality of life).

If you divide the total amount of wages earned during your working years (as reported in the post you linked there) by the number of years since 1997, you come up with something like $60k/year. That ignores any money you’ve received for labor since, and any income from investment.

I don’t think the $75k/year earnings floor is that far off the mark, mustachian or otherwise. Mustachians just use it to work less, where the “average” USAian uses it for an outlandish lifestyle today.

With single people, it could be even easier.
Sure, you lose the advantage of economies of scale, but you also need only the very smallest of living accomodations.
Plus, you can be as badass as you want – turning the thermostat way down, walking and biking everywhere – without the concern of having to convert a spouse to your Mustachian way. You’re also more mobile, which means you can get a place really close to where you work.
The only real difficulty in doing this as a single is that there’s no one to back you up when your friends think you’re insane for failing to “live large”.

The city I live in is basically just a huge suburb in the middle of nowhere. There is no bad part of town, student housing (for the university) is as sketchy as it gets here. It costs about $50k to $60k for a nice 2 bedroom 1000sq ft house. Just saying, you don’t need $250k for a house, even in the USA.

Fair enough, but to be paying close to 35%, effective, you have to be making something like half a million dollars a year (maybe $400K-$600K depending on what state you’re in), and you have no business whining about how high your taxes are anyway, because you are swimming in piles of money.

That’s assuming you’re single with no dependents, too; married people with kids have it even better.

It just pisses me off when people in high brackets complain about the top marginal rate like it’s what they’re actually paying, as though it’s a real hardship to have to pay taxes when you make that much money, in some way that it’s not for people who make much less and are paying the same marginal rates on the first X thousand dollars they make.

Thought I would check this with my own numbers since I have been looking into this recently. This year I have paid on average 31.9%. Holy shit! This is on a total earnings of 51k so far this year and 95k annual. I haven’t been contributing that much to my 401k because my employer doesn’t match but I just bumped it up significantly for exactly this reason. I am interested to see how my tax bill drops…

“Stories like these are always controversial, because when you ask US residents whether they would rather have more free time or more money, they always say “More Money”.

HA!

I’m taking the time…..now. In June I downsized my mid career engineer position to 70% of full time. That works out to every Friday off, plus alternating Thursdays off (I love me those 3 day work weeks followed by a 4 day weekend). Oh, sure, now I make 30% less, but so what? Mid career engineers do extremely well….and even on that reduced pay scale, my current gross is what it was a few years ago before some promotions. I’m maxing out the 401k, full Roth contribution every year, plus 4 figures a month into a taxable investment account. And yes, there MMM, I even stack a few phys Eagles and Maples, both Ag and Au. ;-)

Now, if I could only grow my stubble into a full blow shovel beard ‘stache – I’m only at about a 50 to 60% savings rate. And only if I’d ramped things up 10-12 years ago in my 20’s….but hey, I only have about 5 more years to FI, even at the 70% schedule, so I’ll cruise on in…..perhaps I’ll ramp down to 50% at some point before pulling the ejection handle on work.

I think that for the averages, $75k feels about right but it depends highly on the stage of life. Think about it, the median income in the US is about $50k so if you have to work, pay taxes, health insurance, buy a house, pay other basic living expenses, have kids, etc. and still save money then $75k gives you enough to do all that and not feel completely stressed. Do people live on less while working, sure they do. Is there room in that number to save more and get to FI faster (which most don’t think about) – sure. But that isn’t the question. Do they need $75k when they are retired, probably not because taxes will be lower and house should be paid off and it is a different stage.

Also don’t forget that the increase in household debt over the years was driven far more by mortgages on those houses than by increased student loans and credit cards. Student loans are about $1trillion, all credit cards are about $800billion…..residential mortgages are about $14trillion.

For me the financial happiness level is about $40K/yr. That lets me have everything I reasonably want, live without debt except for a modest mortgage, and put a bit into the stash.

However, I do think there are what I might call quantum levels of financial happiness. That is, increasing my income from $40K to $80K or $100K wouldn’t change much of anything except my savings rate. Jumping to the second quantum level – somewhere in the tens of millions – would allow me a decent ranch in Idaho or Montana. Then there’s the third level, somewhere above a billion or so, where I could e.g. fund my own space program.

I don’t know where my number is, but I agree that that $75K is based on cultural norms. My family and I have cut costs in a lot of places and so I think that that number would be high for us. ANd does that number take into account location? I think that much money would go a lot further in some places over others!

Wondering, are there any urban dwellers out there who live within the $24,000/year + paid off home standard? Just curious if it can be done in a place like San Francisco or NYC for those who prefer that kind of environment.

It would be a heck of a challenge! I’ve lived in both SF and NYC and the cost of living is mind-boggling. According to Trulia, the median-priced house in SF sells today for $700K ($1.2MM in NYC — and that likely includes co-ops and condos, not just single-family homes). Even if you own it outright, you’re going to be paying 1%+ of that value annually in property taxes (with the exception that if you bought the house long ago in CA, Proposition 13 will have limited their increase). A Mustachian would opt for a cheaper-than-median place but there’s only so low you can go in markets like those.

Rent instead? The average studio (i.e., bedroom and living area and one and the same) apartment in Manhattan costs more than $2,200 a month, according to http://www.mns.com/manhattan_rental_market_report . Of course, Manhattan isn’t all of NYC; I’m just using an example of an extreme high-cost urban area.

On the other hand, density and transit make cars relatively unnecessary, so that’s a plus.

But if you spend any money on the formal cultural amenities (museums, nightlife, symphony, etc.) as opposed to the informal exposure you get just from hanging out in a place with so many interesting and diverse people… well, watch out!

The problem here is the cities in question. The trick is to choose a better city to live in. I used to live in New York during grad school, and I go down to San Francisco quarterly for business (and my little sister lives down there), and there are far, far nicer places to spend your time than either.

Are you talking for a family or for a single person? For one person, $24k is totally doable in a city, even if you are still spending $1k or so a month on rent. For a family, it might start to be more of a stretch. The main problem with cities is that buying a home is often prohibitively expensive, so getting to that point of “paid off house” is a major task.

I know it’s hard for ‘people who like that sort of environment’ to believe but anything that you can find in a city can be found in other places.
With the the exception of a few highly specialized jobs, it’s possible to live just about anywhere and find the environment you want. I have family who are ‘city folk’ because they love the ‘neighborhood’, ‘access to museums’, and ‘ethnic food’ that they can ‘only get in the city’. They scof at our ‘ safe, bland suburban lifestyle’. Well, we defintly eat a more varied diet (cause it turn outs – ethinic means italian), we know every single neighbor on our street (and their kids and dogs), and living in a small college town have access to art and culture that rivals almost all other areas (yea, whenever I get a chance to go to NY, I still go to the MET – cause it’s AWESOME!) – if you’re willing to seek it out. What we don’t have – the requirement ot pay for private school because the public one is unsafe, crack houses within a mile of where we live, ridiculously large property taxes.
A big part of the whole mustachian, consious living thing is figuring out – can that same thing be had for cheaper (ie: can I live in a college town and get what I liked about living in the city for half the cost)

I live in San Francisco, in a large rent-controlled apartment that I’ve lived in for 5 years, and the living expenses for my household (2 people) work out roughly like this:
$21,860 rent
$ 1000 utilities
$ 900 transportation costs
$ 5000 food
$ 2000 health expenses
$ 2800 clothing + nonessentials
——–
$33,560 per year

Our rent would be impossible to find now. Pretty sure it’s up to about $3500 per month for a place this size in our neighborhood, if you could find one at all, due to the current flood of folks in the tech industry descending on our city. But, it’s worth noting that very few people live without roommates here, and we’re only able to do it because we’re both self-employed, and using our extra bedroom as a workspace is cheaper than renting a workspace somewhere else.

To put our expenses in perspective, our friends + family consider us to be very frugal and smart with money. Meanwhile we are well aware that we *could* be spending a lot less–probably cut our food expenses by half if we ate out less, for example–but at the end of the day, rent is way more than half our expenses (or income).

I live in Las Vegas, which is fairly car dependent. We spend about $26k per year on non-mortgage/rent items. Food, which is shipped a long way, is not cheap. This is for a family of 3 very similar to MMM’s, and we’re not super frugal, just moderately so I think. So yeah, I think it can be done in the city. Choosing a city with a very low housing cost helps a lot though.

Just found your site and agree with the basic premise of living within means and finding smart ways to save money.

This view of always needing to retire strikes me as strange. Why are people not searching out ways to make money that isn’t drudgery or doing things they hate? Why is work necessarily something to be avoided? Can life only begin once I retire?

I chose a line of work I find fulfilling, rewarding, flexible and pays decent – at least enough for me to survive. For me, it will be a sad day when I leave my job to pursue other things, be it a new location, different field of work or retirement. My job gives me a sense of purpose and way of helping the greater good. That may sound lame, but I like it.

Perhaps more thought and effort should be put into WHAT job you are doing, instead of just trying to retire. We have that luxury in N America. In fact, I would argue that MMM isn’t retired, he is just living a fulfilling life doing what he wants with the modest income he receives from jobs – light carpentry work, landlord and probably a few other things.

I have seen this same statistic thrown around as what is the ideal income level for happiness, which is a different thing altogether. I currently spend $24k a year (including rent, in a big Australian city – more aligned with Bay Area prices than anything else… or at least when I was there 2 years ago – it can be done, and very comfortably!) But even when I was making $50k I felt dissatified because – while I was saving I wasn’t saving that much (so FI was a long way away) and I felt like the money I made was very low relative to the hours and effort I put in (i.e. I felt undervalued). Now, at the “magical number” I feel like my company values my efforts – a fair days work for a fair days pay and all that and FI is in reach. But if I wasn’t working (and already FI) I wouldn’t need to “save” so I’d be happy living off $24k of investments. To spend $75k a year seems ludicrous to me (especially if one had a paid off house!) I doubt I could spend it! That being said $30k a year spending budget would be nice (just a little less penny pinching) but not needed…

Part of our issue is whether we could afford to live in a place where there was housing as low as $250,000. Here the cheapest house possible in the poorest suburb is well over $300,000 and ordinary middle class people who want to live with other ordinary middle class people will pay over $600,000. But where housing is cheaper than $300K there is no work and therefore no income so we cannot afford to live there. If there is no work one is surrounded by people on welfare and while one or two in one’s street is fine, having the majority on welfare changes the social environment in a way we wouldn’t want. So we live in a nearly $400,000 house in one of the workers suburbs and live and save on our $75K income.

I should have pointed out that in addition to being reincarnated as member of the Roots, God will also have to provide me with musical ability. My parents spent good money giving me classes and buying instruments at my young age. It turns out, deaf people can play and sing better than me :)

I don’t think that there is a specific dollar figure that can make you happy. Several years ago, few Harvard students conducted research on happiness. They found few Buddhist monks in the remote village of Thailand to be the happiest bunch.

I believe happiness resides between your two ears. I’ve seen most miserable friends in the midst of ocean of wealth, and others very content with much less.

The key is to define your values and lifestyle, earn enough, save more, and live way below your means.

I disagree with the entire sentiment that there is a dollar amount for happiness. I’m happy now, and I’ll be more h happy when I have enough free time to do what I want and enough money to pay my bills.

To answer MMM’s closing question, I would say about $35k initially, declining slightly over time. We’re a family of 3 and $35k would cover our current annual expenses minus house payments, daycare and tuition for 1 adult in grad school. Declining over time because right now we’re busy as all get out, with 1 adult working and 1 in school and once things calm down a little I think we can focus more on living efficiently.

I enjoyed reading NMHD’s blog, but I’m not sure it called for national news coverage. My wife and I managed to pull off something similar with my University of Texas business school loans, which totaled $55k. I’ll go ahead and put in a plug for UT, it’s a top notch (and Top 20, if you care about rankings) business school with a much (MUCH, as in half as expensive if not less) lower cost of attendance than NMHD’s beloved and much-ballyhooed Hahvahd. We paid this debt while buying a house, having a daughter and subsequently sending that daughter to a ridiculously fancy and un-mustachian combination day-care / health club / social club. And while keeping our household out of debt while my wife gets her MBA (at a paltry $35k, an even better value than my own beloved and much-ballyhooed UT). Not to mention also paying cash for a family car (an only slightly un-mustachian Subaru Forester) after trading in my bachelor ride (an embarrassingly un-mustachian regular cab V-8 (over)powered pickup truck, which I owned for 9 years and yes, MMM is right when he says there is no legitimate personal use for such a vehicle). Somewhere in the middle there I discovered this blog and immediately started punching myself in the face. MMM not only opened my eyes to a rewarding lifestyle, but also showed me how far I have yet to go on my personal journey of badassity.

Good article! Brian and I are living off of 50% of our income currently and saving/investing the rest. We’re above that magical peak happiness number but certainly not making an extraordinary amount of money.

I do think that the amount required is relative though. When I first got out of school and was making regular money for the first time, $40k a year seemed amazing! But then I realized other people were making more and it seemed not so good. And then we started decreasing our expenses, I went back to school, and suddenly, $20k a year seemed fine and getting a coffee once a week was a great treat. In other words, it’s all relative. When you don’t have a lot of expenses, you don’t need much. Right now, with both of us working full time and our debts behind us, we’re in a great spot :)

Having given my family’s basic expenses earlier on this page, I thought I’d chip in that my family income (after taxes and expenses for my self-owned business) is roughly $37k a year. We both really like the work we do & have no interest in retiring for some years. I think we would be perfectly happy (i.e. stress-free about money) if we made $45k.

Back to the discussion of giving money to Uncle Sam, I am willing to pay more in taxes than I do now. We’re double income two kids (for now), making well over 75K and I’m fine with getting taxed more. The US government is in big trouble financially and I can afford to get taxed more to stablilize things.

I would happily pay more property tax if it helped my city improve services. I own a condo in Toronto, and my property taxes are a ludicrously low $972 a year (including water fees, education taxes, the whole thing).

I’m also double income no kids, making signif over $75k, and I really don’t want to pay another dime in taxes. If I had an ounce of faith that the Gov could manage money efficiently, then I might be inclined to give more. Ex: if my relative mis-manages his money and makes bad decisions, I’m not going to be giving him more money, so why would I want to do it for the government.

Now, if I could direct my tax money to go to specific areas of help, then I might be willing to pony-up — but since I can’t, I’ll continue to donate to the non-profits that I believe handle money well and are making an impact.

What you and other Americans forget is that governament is not “them”, they are “you”. It is your government and you collectively and democratically picked it and gave it mandates and jobs to do. Way to go about paying less taxes, and it having more efficiency is by getting involved as a candidate, volounteer or at least voting.

Taxes support the system in which you are able to make “significantly over $75,000”. So, I laugh when I see how hard it is for US governament to raise taxes – instead, they borrow money from China. I also laugh at the misguded hatred of taxes in general. Or when Republicans spit on the government while running to be part of it.

Lastly, as for efficiency, here is an example: Canadian governament along with provincial governments (which by any measure cannot be accused of being efficient), provide healthcare to 100% of Canadians (and good chunk of Americans too) – and total overhead (money spent on administrative and non-medical costs) is less than 3%. In US, until recently, private healthcare companies were not covering millions of people and their overhead was up to 30%. So, while I agree that most governments can do better, do some research about specific inefficiencies before taking Tea Party BS.

Come to think of it, US government IS a non-profit, in fact, they are actually below profit organization, hence deficit. :)

I don’t believe happiness can be measured or defined by how much you earn, but more by how much freedom you have.

I live in the UK where apparently the average income is around £26,000 ($42,000). I left the rat race when I was 27 by investing the majority of my income from my time in the Army into investment properties and now earn around X3 the average UK income. However, I live in the same size house and probably spend the same amount of money on luxuries as my friends who earn the average income. My friends are constantly whining about the world of work and long for the day when they can “do their own thing”. In contrast, I can choose to do what I want when I want, within reason, and in the most part I am completely content.

My premise is that the emphasis should not be on how much money, but on how much freedom.

I totally agree. Freedom is having the time to do what you want and need to do in your life. Anything that steals your time, steals your freedom. I learned that the hard way thanks to a 4-month period of required OT at my job a few years ago. I let my bosses take my time (freedom) for what I finally realized was poor compensation.

That led to a new mindset – I’m now working for financial freedom, not for a paycheck.

My husband and I always say our best times were when we were first married. We bought an old farm house on an acre for $60k, waited tables at night and gardened, hiked with our dogs and just enjoyed life during the day. We didn’t have any debt and our house payment was less than $600/month, which we could make in 1 week. I just received my social security statemet and I was making an average of $15k/year during that time. We had time to can the food we grew, brew beer and make flower arrangements from our garden.

$75K active or passive? When I’m making active income, I want to invest as much as possible, and the more I can invest, the more happy/engaged/excited I am. I think more than $75K would increase my (personal) happiness not because I can buy “stuff” but because I can get involved in bigger projects.

As noted, $75k is given as if it’s universal, and yet obviously is far from it. Living in New York is very different than living in Omaha, and having 6 children and a full-time mom to support is different than being single or having a dual-income marriage w/no children. Tax rates and financial acumen also matter.

I think that even for frugal people, or badasses, if you have a large family you might realistically need 150k/year pretax to feel comfortable and fulfilled financially (especially if you consider donating to worthy causes to be an important part of life), whereas a single person in a low cost area could live quite a happy life for 15-25k if a car wasn’t needed (at that income, taxes are small).

Peak happiness comes when you have ‘enough’ money, which should be more a function of who you are supporting and what your attitude is than it is a function of what society tells you.

I make about 29000e after taxes/year (2300e/month+bonus holiday pay). My current expenses are about 1600e/month including 600e mortgage&interests.

I did some Excel-calculating and found out that after my apartment is paid off & some extra shaved of I will be doing just as fine as I’m doing now with about 600e/month, I have nothing more that I desire that would take much more money than that. That goes around 9-10k a year with some rounding up for possible extra expenses. A rather low number if you ask me :)

Slowly hitting all the old posts. Reading this one today led me to No More Harvard Debt for the first time.

Joe NMHD graduated in 2009 from HBS in the height of the recession at age 26 with 100k in debt, and after 2 years, in 2011 decided to aggressively pay it off in the next 10 months. He blogged about it, published a book, made in on a reality television series??

My husband graduated in from Wharton Business School in 2009 at the age of 29. He only had $75k in debt because he had saved a lot prior to going and lived somewhat frugally during school. We paid off all his student debt in his first year, probably in about 10 months. I guess he should have blogged about it?? Didn’t seem all that spectacular to us. Just common sense!

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